Lomas, R. v. Kravitz, J. , 130 A.3d 107 ( 2015 )

J. E03004-14
2015 PA Super 267ROY H. LOMAS, SR., D/B/A/ ROY LOMAS IN THE SUPERIOR COURT OF
CARPET CONTRACTOR PENNSYLVANIA
Appellee
v.
JAMES B. KRAVITZ, ANDORRA SPRINGS
DEVELOPMENT, INC., CHERRYDALE
CONSTRUCTION CO., EASTERN
DEVELOPMENT ENTERPRISES INC., AND
KRAVMAR, INC.
Appellants No. 2391 EDA 2011
Appeal from the Judgment Entered August 16, 2011
In the Court of Common Pleas of Montgomery County
Civil Division at No. 00-5929
BEFORE: BENDER, P.J.E., BOWES, J., PANELLA, J., DONOHUE, J., SHOGAN,
J., ALLEN, J., LAZARUS, J., WECHT, J., and STABILE, J.
OPINION BY PANELLA, J. Filed: December 21, 2015
This appeal concerns two phases of the underlying trial: the liability
verdict and the damages assessment. As detailed below, the entire Court
affirms the liability verdict entered by the Honorable Thomas P. Rogers of
the Court of Common Pleas of Montgomery County. Accordingly, our holding
and reasoning in that regard is binding and precedential. See
Commonwealth v. Brown, 23 A.3d 544, 556 (Pa. Super. 2011) (en banc).
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The reasoning for our affirmance of the liability verdict follows these
introductory words.
The damages verdict is affirmed by an equally divided Court. Our
holding and reasoning with respect to damages is, therefore, non-
precedential and binding only on the parties. See id.In relation to the damages verdict, the issue on appeal was whether
Judge Rogers, as well as the entire Montgomery County bench, should have
recused. The Majority holds that Appellants’ recusal motion was patently
untimely and, therefore, waived. We further conclude that the recusal
motion was a baseless attack on the trial court following an unfavorable
verdict on liability, made at the expense of the integrity of the Montgomery
County trial bench. This is a waiver case, not an “appearance” case. Judge
Rogers, as the trial judge, made every disclosure that was required of him.
Appellants concede that there is no evidence that Judge Rogers showed bias,
unfairness, or prejudice.
Additionally, under the facts of this case, we cannot agree with the
Dissent that a conflict, which affects but a single judge, leads to the recusal
of the entire trial bench of over twenty trial judges.1
1
The Dissent fails to provide any principled rule or guidance for the trial
bench to assess these challenges in the future. For example, the Philadelphia
trial bench has over 100 judges and the Allegheny Court of Common Pleas
has over 40 judges; it cannot seriously be argued that a conflict of a single
judge carries over to taint the entire trial bench in these counties, as well as
other counties.
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Finally, any result other than an affirmance would absolve Kravitz for
his campaign of incessant use and abuse of our civil litigation processes.
The Parties on Appeal
Appellants, James B. Kravitz, Andorra Springs Development, Inc.
(“Andorra Springs”), Cherrydale Construction Company (“Cherrydale”), and
Kravmar, Inc., formerly known as Eastern Development Enterprises, Inc.
(“Eastern”), collectively known as the “Kravitz Entities,” appeal from the
judgment entered on August 16, 2011, in favor of Appellee Roy H. Lomas,
Sr., d/b/a/ Roy Lomas Carpet contractor (“Lomas”), in the amount of
$1,688,379.10.
Summary
In 1994, Appellant Cherrydale and Appellee Lomas entered into a
contract in which Appellee agreed to supply and install floor coverings in new
construction homes being built by Cherrydale. Appellee began work
immediately, but shortly thereafter Cherrydale breached the contract and
Appellee stopped work. At that point, Cherrydale owed Appellee $30,913.00.
The matter went to arbitration and a panel of arbitrators unanimously
concluded that Cherrydale had breached the contract. After the entry of an
interim award of $30,913.00 in Appellee’s favor, Cherrydale petitioned to
vacate the interim award.
In September 1998, the arbitration panel entered a final award
totaling $200,601.61, in accordance with the Contractor and Subcontractor
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Payment Act (“CASPA”), 73 P.S. §§ 501-516, which included the $30,913
balance due for work performed plus compensatory damages, attorney’s
fees, costs, and interest calculated in accordance with CASPA. Cherrydale
filed a petition to strike the final award which was ultimately denied on
October 31, 2001. While the petition was pending, Appellant Kravitz
transferred all assets out of Cherrydale, Andorra Springs, and Eastern to
himself and other entities under his control.
In March 2000, Appellee initiated the instant action seeking to pierce
the corporate veil of the Kravitz Entities and alleging fraud and fraudulent
transfers. Several years of legal proceedings and discovery ensued before a
bench trial commenced in January 2007. The parties agreed to bifurcate the
trial, and after the court entered a liability verdict and order in favor of
Appellee and against Appellants in July 2007, the damages phase
commenced in September 2007.
After the close of the record following the second phase of the trial,
but before the trial court rendered its final verdict, Appellants sought recusal
of the entire Montgomery County Court of Common Pleas. More delays
ensued before the trial court denied the motion. On April 29, 2011, the trial
court issued extensive findings of fact and conclusions of law determining
that Appellant Kravitz had intentionally deprived Cherrydale of assets with
which to pay Appellee, and had intentionally and fraudulently disregarded
the corporate form, intermingling his and his company’s affairs to perpetrate
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a fraud and injustice. The trial court confirmed the initial arbitration award of
$200,601.61 and awarded compensatory and punitive damages, attorney’s
fees, interest, and penalties for a total award of $1,688,379.10. After the
entry of judgment on August 16, 2011, Appellants timely appealed to this
Court. A three-judge panel of this Court affirmed after adopting the trial
court’s Pa.R.A.P. 1925(a) opinion as its own. This Court then granted
reargument, en banc.
Background
The Kravitz Entities
From 1994 to 1998, Appellant James B. Kravitz was the sole officer,
director, and 100% shareholder of a group of companies known collectively
as the Andorra Group.2 The Andorra Group was comprised of many
subchapter S corporations involved in the home building business including,
but not limited to, Appellants Andorra Springs, Cherrydale, and Eastern.
Kravitz did not hold corporate meetings or otherwise conform to standard
practices required of such entities. Appellant Kravitz personally owned The
Reserve at Lafayette Hill in Whitemarsh Township (the “Reserve”), a large
parcel of land which he divided into six sections for residential development.
He contributed Sections I, II, and III, valued at $3.2 million, to Andorra
Springs, which had been formed for the sole purpose of owning Sections I,
2
The Andorra Group was a fictitious name representing all of Kravitz’s
companies, most of which were in the home building business during the
years 1994-1998. The name was used by Kravitz so that he could have one
name for his developments that would be recognizable by the public.
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II, and III and developing single-family housing there. Kravitz kept Sections
IV, V, and VI for himself. Sometime in 1996, Kravitz entered into an option
agreement with Pulte Home Corporation of Delaware Valley (“Pulte”)
whereby Pulte purchased Sections IV, V, and VI from Kravitz.
Appellant Cherrydale was formed in 1989 but was inactive until 1993
when it contracted with Andorra Springs to build single-family homes.
Andorra Springs was Cherrydale’s only customer. Cherrydale had no capital,
and the contract between Cherrydale and Andorra Springs had no inherent
value to Cherrydale such that it could obtain a loan from a bank. Cherrydale
was to receive payments directly from Andorra Springs for costs incurred in
connection with building the homes.
Appellant Eastern served as the management and payroll company for
the Andorra Group. Steven A. Braun was the Chief Financial Officer of
Eastern from 1992 to 1996. After leaving his employment with Eastern,
Braun was retained by Kravitz to offer accounting advice and prepare the tax
returns for the companies within the Andorra Group.
Appellee’s Involvement and Subsequent Kravitz Actions
On November 10, 1994, Cherrydale, as the contractor for Andorra
Springs, contracted with Appellee to supply and install floor coverings in its
new homes. Appellee began work immediately but stopped in December
1994 because Cherrydale had not paid him. At that point, Cherrydale owed
Appellee $30,913.00. In January 1995, Appellee demanded that Appellant
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Cherrydale submit to arbitration in accordance with their contract. Thomas
C. Branca, Esq., represented Appellee at the arbitration. On May 24, 1996,
the arbitration panel issued an interim partial award, finding that Cherrydale
had breached its contract with Appellee and had violated CASPA, 73 P.S. §§
501–516. Immediately thereafter, Kravitz filed a petition seeking to have the
interim award vacated.
During the pendency of that petition, Appellant Kravitz and his
accountant decided that due to allegedly declining financial conditions
Cherrydale, Andorra Springs, and Eastern were each insolvent. Accordingly,
on December 20, 1996, Kravitz, as sole shareholder, director and secretary
of each company, executed a “Combined Unanimous Consent of
Shareholders and Directors” for each of the three companies terminating
their business activities. He also directed each company to take the
necessary steps to wind-up and terminate all residential construction and
related business activity and sell any remaining assets associated therewith,
and “to pay, to the extent possible, the substantial amounts of inter-
company accounts payable or to otherwise cancel those accounts payable.”
On December 31, 1996, Cherrydale wrote off debts of $2,159,575 owed to it
by Andorra Springs. On January 4, 1997, Kravitz authorized Cherrydale to
cancel both its accounts payable and accounts receivable.3
3
Cherrydale continued to build homes for Andorra Springs in 1997 and 1998
even though Cherrydale was allegedly winding down its business.
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Kravitz Entities’ Inter-Company Transactions
Funds that were supposed to flow from Andorra Springs, the owner, to
Cherrydale, the contractor, were never paid. By the end of 1996, Andorra
Springs owed Cherrydale $3.7 million for the homes Cherrydale had built.4
In addition, Cherrydale had incurred $714,000 in costs relating to the site
improvements to Sections I, II, and III of the Reserve that benefited
Sections IV, V, and VI. However, at the same time that Andorra Springs was
indebted to Cherrydale for the costs of constructing homes, Andorra Springs
loaned Eastern approximately $5.8 million over and above what it owed
Eastern for management services related to the Reserve. Eastern used the
money from Andorra Springs to fund Kravitz’s other interests, including, but
not limited to, his horse farm, Burnt Chimney Farms,5 his personal residence
in Gladwyne and his other properties in Upper Dublin, Hunter’s Pointe and
Andorra Glen. By the end of 1996, Eastern had advanced over one million
4
Braun authored memoranda in August 1994 and December 1995, which
indicated that Cherrydale was profitable. It lacked cash only because
Andorra Springs did not pay it.
5
During 1995 and 1996, Andorra Springs made cash transfers or loans to
Burnt Chimney Farms, Kravitz’s horse farm. On December 31, 1996, the
balance of the transfers and loans made by Andorra Springs to the farm was
approximately $577,552. At the time of those transfers or loans, Burnt
Chimney Farms was insolvent. Andorra Springs received no security for the
transfers or loans, even though Burnt Chimney Farms had unencumbered
assets valued at over $1,000,000 such as land, horses, and buildings. Burnt
Chimney Farms never paid Andorra Springs back and Andorra Springs never
took steps to collect the debt. Andorra Springs wrote off the $577,551.81 as
bad debt.
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dollars to Kravitz’s then-insolvent horse farm. Eastern made no efforts to
collect that debt. Kravitz eventually determined that Burnt Chimney Farms
could not repay Eastern, and Eastern wrote it off as bad debt.6 Kravitz also
determined that Eastern could not repay Andorra Springs and wrote off
approximately $4,905,000 as bad debt. While Eastern was allegedly
insolvent, Kravitz transferred approximately $654,108 of Eastern’s money to
himself in the form of a capital distribution for which Eastern received
nothing of value in return.
On June 12, 1997, the Honorable William T. Nicholas of the
Montgomery County Court of Common Pleas denied Appellant’s petition to
vacate and confirmed the interim arbitration award.
In September 1997, while awaiting the entry of the final arbitration
award, Kravitz directed Braun to make a series of adjusting journal entries
for the year ending December 31, 1996, for the Kravitz entities. As part of
the adjusting journal entries, Cherrydale, which had incurred $714,000 in
costs relating to the site improvements that benefited Sections IV, V, VI, 7
transferred that account receivable to Andorra Springs. Cherrydale received
nothing from Andorra Springs for the transfer except a promise to pay. The
promise to pay was worthless to Cherrydale because Andorra Springs was,
6
Kravitz also personally loaned Burnt Chimney Farms approximately $1.8
million, but he did not view his own loan as uncollectible and did not write
off his loan to Burnt Chimney Farms as bad debt.
7
Site improvements include grading, underground sewer systems, roadway,
wiring for electricity, basically preparing the site for development.
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at that time, insolvent. Once the account receivable for the site
improvements had been transferred by journal entry adjustment to Andorra
Springs, Andorra Springs transferred the site improvements, also via journal
entry adjustment, to Kravitz and wrote off the debt it owed to Cherrydale.
As a result of the transfer of the accounts receivable for the site
improvement from Cherrydale to Andorra Springs, and from Andorra Springs
to Kravitz, Kravitz owed Andorra Springs $714,000. Andorra Springs
received nothing for the distribution to Kravitz, other than the cancellation of
a loan of $124,000 allegedly made by Kravitz to Andorra Springs. Kravitz
then received a capital distribution from Andorra Springs for the remaining
$590,000. Andorra received nothing in exchange for the capital contribution.
This series of transactions allowed Kravitz to avoid paying creditors of the
Andorra Group companies, and to retain the value of the Andorra Group
corporations through transfers of improvements, capital distributions, and
write-offs of loans made to himself and his horse farm.
On September 4, 1998, the arbitrators issued a final award (“Final
Award”) pursuant to CASPA in the amount of $200,601.61, including
compensatory damages, attorney’s fees, costs and interest determined as
follows.
Unpaid balance for work performed by Lomas: $ 30,913.00
Interest on Unpaid balance [at 1% per month]
up to and including August 7, 1998: $ 13,302.00
Lost profit for unperformed work due to
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improper termination of the contract: $ 94,199.00
Interest on the lost profit amount [at 6% per annum]
up to August 7, 1998 less interest on the deposit credit
from April 1, 1995 to August 7, 1998: $ 14,872.00
Attorney’s fees and litigation costs: $ 41,834.78
Reimbursement of administrative fees and
expenses: $ 4,032.66
Reimbursement of compensation and
expenses of the arbitrators: $ 1,448.17
TOTAL $200,601.61
Final Award of Arbitrators, 9/4/98, at R.R. 722a.
The Final Award confirmed that interest would accrue on the unpaid
balance for work performed ($30,913) at 1% per month as provided by
CASPA, 73 P.S. § 512, and interest on the portion of the award for lost profit
($94,199) would accrue at the legal rate of 6% per annum. On September
16, 1998, after the entry of the final award as a judgment against
Cherrydale, Cherrydale filed a petition to strike the judgment.
During the pendency of that proceeding, Appellee conducted discovery
in anticipation of executing on the judgment and discovered that Appellant
Kravitz had transferred all assets from Cherrydale, Andorra Springs, and
Eastern to his other entities and himself.
The Instant Litigation
On March 31, 2000, while awaiting the trial court’s decision on
Cherrydale’s petition to vacate the judgment, then-Attorney Thomas Branca
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initiated the instant action by filing a complaint on Appellee’s behalf seeking
to collect the September 10, 1998 judgment based on: (1) piercing the
corporate veil; (2) fraudulent transfer under the Uniform Fraudulent Transfer
Act, 12 Pa.C.S.A. §§ 5101-5110; and (3) fraud. Discovery and motions
ensued.
In November 2001, Attorney Branca was elected to the Montgomery
County Court of Common Pleas; he referred his case load to other attorneys,
and filed a withdrawal of appearance in the instant matter on January 4,
2002. On March 1, 2002, attorneys from Spector, Gadon & Rosen P.C.
(“SGR”) entered their appearances on behalf of Appellee, and filed motions
to compel the production of documents that had previously been requested.
Soon thereafter, Appellant Kravitz filed a petition to have SGR disqualified.
After a hearing, Judge Nichols concluded Appellants’ concerns were without
merit and denied the motion in June 2002.
When discovery was nearly complete, Appellants’ attorney sought to
withdraw as counsel over a payment dispute with Kravitz. A hearing ensued,
during which Appellants’ counsel assured Appellee and the court that the
case would not be delayed by the substitution of counsel. Attorneys for both
sides stated that they were preparing motions for summary judgment.
Notwithstanding their promise of no further delays, in July 2004, after
Appellee filed a motion for summary judgment, Appellants sought and
received sixty additional days to conduct discovery. On the sixtieth day,
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Appellants made additional requests seeking information and documents
that had already been produced. Because of Appellants’ redundant actions,
the resolution of Appellee’s summary judgment motion was delayed until
June 2005 when the trial court denied it. Despite arguing in opposition to
Appellee’s summary judgment motion that there were material issues of
fact, Appellants then filed their own motion for summary judgment thus
causing further delay. Judge Nicholas ultimately denied their motion and the
case was scheduled for trial. Between 2005 and 2007, trial was continued
numerous times due to the alleged unavailability of Appellants’ witnesses
and experts.
At a pre-trial conference on January 12, 2007, the Honorable Thomas
P. Rogers discussed with counsel, and specifically with Appellants’ counsel,
Steve Kapustin, Esq., the issue of now-Judge Branca having previously
represented Appellee. Judge Rogers gave assurances to the parties that he
had never discussed the case with Judge Branca. All counsel unequivocally
agreed to proceed before Judge Rogers.
The liability phase of the bifurcated trial commenced on January 16,
2007. Accountants for both sides testified regarding the financial activities
of Appellants, including the various transfers and loans amongst them,
Kravitz’s declaration of insolvency of each of Appellant Corporations after the
entry of the May 1996 interim arbitration award, and the resulting tax
implications and benefits flowing to Kravitz. On July 30, 2007, Judge Rogers
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entered a liability verdict and order in favor of Appellee and against
Appellants, concluding that Kravitz had misused his corporations and
fraudulently transferred assets out of Cherrydale in wanton disregard for the
rights of Appellee as a creditor. The court also concluded that the testimony
provided by Kravitz and Braun was not credible. The court scheduled the
second phase of the trial on damages and attorney’s fees to begin in
September 2007.
In preparation for the damages phase of the trial, Appellee served
requests for production of documents on Appellants seeking to identify the
net worth of Kravitz and his entities. Appellee received only a small number
of the documents requested. On the eve of trial in September 2007, Kravitz
produced tax returns and joints statements of financial condition between
himself and his wife, but refused to produce many other court-ordered
documents.8
At trial, Judge Branca testified regarding his involvement in this case
prior to his ascension to the bench, his earned counsel fees, his referral of
the case to SGR, and the referral fee Appellee had directed SGR to pay him
at the end of the case. See Notes of Testimony (“N.T.”), 9/6/07, R.R. at
8
Kravitz refused to produce, among other things, 14 appraisals on non-
residential real estate he owned, brokerage or bank statements for 2006 or
2007, documentation regarding certificates of deposit and money market
funds held or cashed out in January 2007, and documents relating to two
partnerships in Carlisle, Pennsylvania.
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2504.9 Judge Branca also testified that he had spoken with SGR and
Appellee periodically about the case and indicated that his discussions
“[were] nothing of substance.” Id., at 2502. He also noted that he recalled
a discussion with an SGR attorney regarding Appellee’s expert’s discussion of
tax issues in his report, but observed that those issues that “were far from
significant.” Id., at 2503.
Judge Branca also clearly testified that he had never spoken with any
judge about this case.
Three other witnesses, including Appellant Kravitz, then testified.
Kravitz refused to answer many questions regarding his assets and the
transfer of his assets. Kravitz did testify, however, that in 2001, he had $5.5
million in equity in the land owned by one of the Andorra entities, which was
subsequently sold for $32 million. Kravitz and his wife split the net proceeds
80-20, and each opened certificates of deposit in the amount of $2 million.
He would not or could not identify what was done with the remaining
proceeds from the sale. He testified that the certificates of deposit had been
liquidated in January 2007, but refused to state what he had done with the
proceeds.
9
Judge Branca testified that Appellee and SGR had decided that he would
receive “a third referral of the net proceeds as a fee.” Id., at 21-22. There
is no indication in the record as to what “a third referral of the net proceeds”
means or what it would include under the agreement forged between
Appellee and SGR.
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Kravitz also testified regarding numerous other assets, including
commercial and residential parcels of land located in Plymouth Township,
Upper Dublin, Hunter’s Pointe, and Philadelphia, which were owned by
various S Corporations in which he had an 80%-100% interest. He also
testified that he owned 100% of the S Corporation that owned Burnt
Chimney Farms, the 160 acre farm with polo fields, which he stated was
valued at $3.5 million.10 He also stated that in December 2006 he had $3
million in certificates of deposit and an additional $5 million in a money
market account, but Kravitz could not identify where those funds had gone.
He also stated that he had a home valued at $1.9 million in Gladwyne; a
condominium in Florida, which he had transferred to a joint ownership with
his wife during the pendency of the litigation; and a 2007 BMW for which he
had paid $140,000 in cash. Kravitz testified that at the close of 2006, he had
a net worth of over $27 million. See Findings of Fact – Damages, at 12-15.
At the close of the damages trial, over Appellee’s objection, Appellants
were granted 30 days to determine whether they needed to retain a forensic
accountant to review the redacted invoices submitted by Appellee’s
attorneys. Although they stated that they would tell the court of their
decision, the thirty days passed with no word from Appellants.
10
Kravitz also testified that he “may have” paid the expenses for polo
players from Argentina to play polo at the Farms, although he could not or
would not testify as to which years and how many years he may have done
so. Findings of Fact – Damages at 15, ¶ 71.
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On October 15, 2007, after the record had been closed, Appellants
appeared with newly retained counsel and submitted a motion for recusal of
the entire Montgomery County Court of Common Pleas, transfer of venue, or
assignment to an out-of-county judge based on Judge Branca’s involvement
with the case. On December 31, 2008, Judge Rogers denied the motion,
stating:
The imputed “appearance of impropriety” which Defendants
claim exists by virtue of Judge Branca’s interest in the
underlying case provides the court with no legal basis upon
which to conclude that Defendants cannot receive, have not
received or will not continue to receive a fair and impartial trial
in Montgomery County.
***
No appearance of impropriety exists or is presumed to exist
simply because a Judge of the Court of Common Pleas of
Montgomery County has an interest in the underlying case.
***
The undersigned will not permit a party who is dissatisfied with
the progress of the trial mid-stream to arbitrarily attempt to
cause the disqualification of the Presiding Judge. Judge shopping
has been universally condemned and will not be tolerated at any
stage of the proceedings. See, e.g., Commonwealth v. Ryan,
400 A.2d 1264 (Pa. 1979). The record here does not show
prejudice or bias, hence, without substantiation in the record
that they did not receive a full, fair and impartial trial,
Defendants shall not be permitted to question the court’s
verdict.
Trial Court Opinion, dated 12/31/08, at 8, 12-13.
The court entered partial judgment pursuant to its July 30, 2007 order
in favor of Appellee and against Appellants for $200,601.61. Appellants filed
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an interlocutory appeal, which this Court quashed on March 5, 2009.
Appellants then filed an application for extraordinary relief with our Supreme
Court requesting that it exercise its King’s Bench authority to assume
plenary jurisdiction. Appellants simultaneously filed a motion for a stay of
trial court proceedings with both this Court and our Supreme Court pending
the outcome of the King’s Bench application. The Superior Court denied
Appellants’ motion for a stay, and on June 3, 2009, our Supreme Court
denied by per curiam order both the motion for a stay and Appellants’
application for extraordinary relief. Appellants then filed a petition for
reconsideration with the trial court for reconsideration of its denial of the
recusal motion. That petition was denied, and on July 19, 2010, the trial
court heard closing arguments on Appellee’s claims for interest, attorney
fees, and punitive damages.
On April 29, 2011, the trial court issued two orders, one detailing
findings of fact and conclusions of law with respect to Appellants’ liability,
and the other assessing compensatory and punitive damages, penalties,
interest, and attorney’s fees in the amount of $1,688,379.10 as of April 30,
2011. After the denial of Appellants’ post-trial motion, the prothonotary
entered final judgment on August 16, 2011.
Appellants timely appealed to this Court, and have briefed the
following seven issues.
Whether, as a matter of law, the entire bench of the
Montgomery Court of Common Pleas should have been recused,
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and/or full, complete, and required discovery permitted, because
of the irreparable appearance of impropriety created by the
ongoing participation and financial interest in the litigation by a
sitting member of that Court?
Whether, as a matter of law, the testimony of Appellee’s expert
should have been discredited and/or stricken, because Appellee’s
attorneys and a sitting member of the Montgomery County
bench improperly altered, edited, and influenced the content of
the expert’s report. [sic]
Whether, as a matter of law, the corporate veil can be pierced to
find James B. Kravitz individually liable, and all Appellants liable
for fraudulent transfers, based on non-cash accounting
adjustments and bookkeeping entries made by licensed
professional accountants in the ordinary course of business
pursuant to generally accepted accounting practices for the
lawful purpose of minimizing tax liabilities. [sic]
Whether, as a matter of law, punitive damages may be awarded
where the underlying arbitration award was based on the
Contractor and Subcontractor Payment Act, which includes a
provision authorizing the award of a statutory punitive penalty.
[sic]
Whether, as a matter of law, punitive damages may be awarded
where Appellants’ conduct was motivated by generally accepted
accounting and tax planning principles and not outrageous,
willful, wanton, or reckless, and where Appellants’ conduct in
defending the litigation was within its due process rights and was
not dilatory, obdurate, and/or vexatious?
Whether, as a matter of law, a punitive damages award far
exceeding a 1:1 ratio with the compensatory damages award
violates Appellants’ rights to due process under the United
States Constitution?
Whether, as a matter of law, the trial court could award Lomas
attorney’s fees, interest, and penalties under the Contractor and
Subcontractor Payment Act (“CASPA”) when Lomas did not bring
a claim under CASPA, the trial court was precluded from altering
or adjusting the underlying arbitration award which did award
certain damages under CASPA, and the trial court misapplied
CASPA in its award of damages?
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Appellants’ Brief at 2-3.
Discussion
Our standard and scope of review of a non-jury verdict are as follows.
Our appellate role in cases arising from non-jury trial verdicts is
to determine whether the findings of the trial court are
supported by competent evidence and whether the trial court
committed error in any application of the law. The findings of
fact of the trial judge must be given the same weight and effect
on appeal as the verdict of a jury. We consider the evidence in a
light most favorable to the verdict winner. We will reverse the
trial court only if its findings of fact are not supported by
competent evidence in the record or if its findings are premised
on an error of law. However, [where] the issue … concerns a
question of law, our review is plenary.
The trial court’s conclusions of law on appeal originating from a
non-jury trial are not binding on an appellate court because it is
the appellate court’s duty to determine if the trial court correctly
applied the law to the facts of the case.
Stephan v. Waldron Electric Heating and Cooling LLC, 100 A.3d 660,
664-665 (Pa. Super. 2014) (citation omitted). “[A]bsent an abuse of
discretion, the reviewing court is bound by the trial court’s credibility
determinations.” De Lage Landen Financial Services, Inc. v. M.B.
Management Co., Inc., 888 A.2d 895, 898 (Pa. Super. 2005) (citation
omitted).
Recusal
In their first issue, Appellants aver that Judge Rogers erred in not
granting their motion to recuse the entire bench of the Montgomery County
Court of Common Pleas after the close of the damages trial. Although they
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concede that there is no evidence that Judge Rogers showed bias, unfairness
or prejudice, Appellants nevertheless argue that because Judge Branca
continued to have a connection with the case after his election to the bench,
the mere appearance of impropriety existed such that recusal of the entire
bench was required. Appellants have waived this argument for failing to
timely raise it at the first possible opportunity.
“A party seeking recusal or disqualification [is required] to raise the
objection at the earliest possible moment, or that party will suffer the
consequence of being time barred.” In re Lokuta, 11 A.3d 427, 437 (Pa.
2011) (emphasis added) (quoting Goodheart v. Casey, 565 A.2d 757, 763
(Pa. 1989)). Once a party has waived the issue, “he cannot be heard to
complain following an unfavorable result.” Commonwealth v. Stanton,
440 A.2d 585, 588 n.6 (Pa. Super. 1982) (citations omitted).
Here, Appellants had two opportunities to seek recusal before they
eventually filed their motion. The first opportunity occurred before trial in
January 2007 when Judge Rogers informed the parties of Judge Branca’s
prior representation and assured them of his (Judge Rogers’s) ability to
remain fair and impartial. Appellants’ second opportunity to seek recusal
occurred on September 6, 2007, immediately after Judge Branca testified
regarding his past and current involvement with the case.
Appellants contend that it was on September 6, 2007, that they first
learned that Judge Branca had maintained an interest in the case. As a
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result, Appellants argue that September 6, 2007, was the “earliest possible
moment” in which they should have filed their recusal motion. In re
Lokuta, 11 A.3d at 437. However, rather than file an immediate recusal
motion, Appellants allowed the trial to proceed with testimony from three
more witnesses including, most significantly, Appellant Kravitz. See N.T.,
Damages Trial, 9/6/07, at 65-83. As noted, Kravitz’s testimony appeared
extremely evasive and fabricated. It was only after this negative
development that newly-retained counsel appeared and filed Appellants’
recusal motion. To be more specific, it was not until Appellants requested a
post-hearing thirty-day review of the attorneys’ bills, and the thirty-day
period had passed without Appellants filing any relevant documents, and not
until the record had closed, that newly-retained counsel appeared and filed
the recusal motion.
This action, or lack of action, is unacceptable and untimely. Judge
Rogers told Appellants’ counsel of Judge Branca’s earlier involvement in the
litigation prior to trial. Appellants took no action to question Judge Branca on
the extent of his involvement, either informally or formally through a
deposition. Appellants could have easily found out about Judge Branca’s
continued financial interest by just asking him. Instead, “Appellant[s] chose
to remain silent, resorting to the unconscionable and reprehensible tactic of
laying in the grass, waiting until the decision [was imminent], and then
raising the disqualification issue[.]” Goodheart, 565 A.2d at 763. Because
22
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Appellants failed to timely raise their motion, they waived the recusal issue.
See, e.g., Datagate, Inc. v. Hewlett-Packard Co., 941 F.2d 864, 871-
872 (9th Cir. 1991) (delay of six weeks rendered motion untimely); Apple
v. Jewish Hosp. and Medical Center., 829 F.2d 326, 334 (2d Cir. 1987)
(noting a delay of two months after movant learned of facts allegedly
requiring recusal rendered motion untimely). See also In re International
Business Machines Corporation, 45 F.3d 641, 643 (2d Cir. 1995).
Every jurisdiction has recognized that disqualification of a judge is
waivable, and “if a party knows of facts that would disqualify a judge, but
does not move for disqualification, the right to do so at a later date will be
considered waived.” James J. Alfini et al., Judicial Conduct and Ethics § 4.14
(4th ed. 2007). Paramount among concerns about an untimely motion to
disqualify a judge is a party’s late attempt to judge shop: “Given the
importance of court proceeding, not to mention their time and expense, a
party should not be able to save an objection until a later date as a hedge
against losing a case.” Id.
Among other citations, the treatise cites to a Pennsylvania decision,
Reilly by Reilly v. Southeastern Pennsylvania Transp. Authority, 479
A.2d 973 (Pa. Super. 1984), aff’d, 489 A.2d 1291 (Pa. 1985), for the well
settled policy that a motion for the disqualification of a judge “should be
made at the earliest possible time after a party has actual notice of
disqualifying facts.”
23
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Our opinion in Reilly, as well as the Pennsylvania Supreme Court's
opinion in the same case, clearly mandates the necessity of a timely motion
for disqualification.
In Reilly, the Superior Court concluded that the defendant SEPTA had
not timely filed its Motion for Recusal because it had not been raised during
trial and was only raised for the first time during post-appeal pleadings. The
panel found broad support in the holdings of federal and state decisions.
If the party fails to object at the earliest opportunity following
receipt of actual knowledge, the objection will be held waived. A
party may not elect to take a chance on gaining a favorable
decision and then, if the decision is unfavorable, raise grounds
for recusal of which he or his counsel had actual knowledge prior
to the decision being made. See Delesdernier v. Porterie, 666
F.2d 116 (5th Cir.) … (motion untimely when judge made
disclosure of relationship pre-trial and recusal motion was made
for first time on appeal after two full trials); Potashnick v. Port
City Construction Co., [609 F.2d 1101 (5th Cir) … (grounds for
recusal raised for first time on appeal not waived because it was
not discovered until after trial); United States v. Conforte, 624
f.2d 869 (9th Cir.) … (cannot raise grounds for recusal for first
time on appeal when had notice of facts earlier -- timeliness
cannot be disregarded in all cases, although it may be in
extraordinary cases); Smith v. Danyo, 585 F.2d 83 (3d. Cir.
1978) (timeliness is significant because cannot tolerate litigant
knowing information and holding back hoping for favorable
rulings and then seeking recusal when rulings are not favorable;
recusal motion filed three months after events giving rise to
objection but before trial and when there had been no rulings in
meantime is timely); United States v. Kelly, 519 F.Supp. 1029(D.Mass. 1981) (motion untimely where attorney had knowledge
of facts but waited until after six week trial, mistrial and Rule
29(c) motion to file recusal motion); Commonwealth v.
Pavkovich, 444 Pa. 530, 283 A.2d 295 (1971) (was error for
judge who had been prosecuting attorney to sit on court en banc
in deciding post-trial motions, but no objection was raised prior
to appeal); Commonwealth v. Musto, 348 Pa. 300, 35 A.2d
307 (1944) (defendant waived objection when he proceeded to
24
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trial without objection, despite knowledge that judge may have
been a witness); Commonwealth v. Bahl, 111 Pa. Super. 598,
170 A. 346 (1934) (motion untimely when judge made
disclosure before Plaintiff completed his case and motion was
made at end of defendant’s case).
479 A.2d at 988.
Further, even if the issue were not waived, we cannot agree with the
Dissent’s overstated conclusion that there was an inherent appearance of
impropriety in Judge Rogers presiding over this case. While the appearance
of impropriety alone is enough to warrant recusal, recusal must occur only
under appropriate circumstances. Those circumstances were not present
here.
The party who asserts that a trial judge must be disqualified must
“produce evidence establishing bias, prejudice, or unfairness which raises a
substantial doubt as to the jurist’s ability to preside impartially.” Arnold v.
Arnold, 847 A.2d 674, 680 (Pa. Super. 2004) (citation omitted). There is a
presumption that judges of this Commonwealth are “honorable, fair and
competent,” In re Lokuta, 11 A.3d at 453 (Pa. 2011) (citation omitted),
and, when confronted with a recusal demand, are able to determine whether
they can rule “in an impartial manner, free of personal bias or interest in the
outcome,” Arnold, 847 A.2d at 680 (citation omitted). If the judge
determines he or she can be impartial, “the judge must then decide whether
his or her continued involvement in the case creates an appearance of
impropriety and/or would tend to undermine public confidence in the
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judiciary. This is a personal and unreviewable decision that only the jurist
can make.” Id., at 680-681 (citation omitted). A judge’s decision to deny a
recusal motion will not be disturbed absent an abuse of discretion. See In
re Lokuta, 11 A.3d at 435.
Here, Appellants presented no evidence that established bias,
prejudice, or unfairness which raised a substantial doubt as to Judge
Rogers’s ability to preside impartially.
Our Supreme Court has recognized that it
would be an unworkable rule which demanded that a trial judge
recuse whenever an acquaintance was a party to or had an
interest in the controversy. Such a rule ignores that judges
throughout the Commonwealth know and are known by many
people, … and assumes that no judge can remain impartial when
presiding in such a case.
Commonwealth v. Perry, 364 A.2d 312, 318 (Pa. 1976). See also Korner
v. Warman, 659 A.2d 83, 85 (Pa. Cmwlth. 1995) (finding no reason for
recusal “just because a fellow county judge is allegedly implicated in a case,
where the trial judge foresees no problems with impartiality[]”). Moreover,
[w]hile the mediation of courts is based upon the principle of
judicial impartiality, disinterestedness, and fairness pervading
the whole system of judicature, so that courts may as near as
possible be above suspicion, there is, on the other side, an
important issue at stake: that is, that causes may not be unfairly
prejudiced, unduly delayed, or discontent created through
unfounded charges of prejudice or unfairness made against the
judge in the trial of a cause. It is of great importance to the
administration of justice that such should not occur. If the judge
feels that he can hear and dispose of the case fairly and without
prejudice, his decision will be final unless there is an abuse of
discretion. This must be so for the security of the bench and the
successful administration of justice. Otherwise, unfounded and
26
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ofttimes malicious charges made during the trial by bold and
unscrupulous advocates might be fatal to a cause, or litigation
might be unfairly and improperly held up awaiting the decision of
such a question or the assignment of another judge to try the
case. If lightly countenanced, such practice might be resorted to,
thereby tending to discredit the judicial system. The conscience
of the judge alone is brought in question; he should, as far as
possible, avoid any feeling of unfairness or hostility to the
litigants in a case.
Reilly by Reilly, 489 A.2d at 1299 (emphasis added).
Appellants and the Dissent rely on Commonwealth ex rel. Armor v.
Armor, 398 A.2d 173 (Pa. Super. 1978) (en banc) (plurality), in support of
the assertion that recusal of the entire bench is required. Initially, we note
that Armor provides no precedential value regarding the issues of recusal
and appearance of impropriety by a trial court.11
In Armor, a father filed a petition with the Montgomery County Court
of Common Pleas to reduce his child support obligation. The day before the
11
Although Armor was written by Judge Price, in relation to the issues of
recusal and appearance of impropriety, one judge concurred and one judge
concurred in the result only. Three judges explicitly dissented from Judge
Price’s holding that no judge of the Montgomery County bench could hear
the child support case, i.e., Judge Cercone in his concurring and dissenting
opinion, and Judge Wieand, joined by Judge Hester, in his dissenting
opinion. Therefore, not only is Armor a plurality opinion, which carries no
binding authority, the majority holding was not joined by a sufficient number
of judges to warrant precedential value. See Interest of O.A., 717 A.2d
490, 496 n.4 (Pa. 1998) (“While the ultimate order of a plurality opinion,
i.e., an affirmance or reversal, is binding on the parties in that particular
case, legal conclusions and/or reasoning employed by a plurality certainly do
not constitute binding authority.”); Commonwealth v. Brown, 23 A.3d
544, 556 (Pa. Super. 2011) (en banc) (“Where, as here, however, the
concurrence does not explicitly state its agreement or disagreement with the
plurality, we must look to the substance of the concurrence to determine the
extent to which it provides precedential value to points of agreement.”).
27
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hearing, he moved for a change of venue, asserting that because his former
wife was (1) married to a judge on the bench, and (2) represented by the
county controller, any hearing within Montgomery County would create the
appearance of impropriety. The trial court denied the motion for a change of
venue and dismissed the petition. On appeal, the Superior Court opined that
the father could receive a fair and impartial hearing in Montgomery County.
We nonetheless vacated the trial court’s orders, stating:
[W]e should not approve the procedure whereby any of the
judges of the Court of Common Pleas of Montgomery County are
called upon to rule on matters relating to wife-appellee's child
support matters. Such actions would, in our opinion, tend to
weaken the public confidence in a court that has established an
enviable record in its performance and service to Montgomery
County and its citizens. Pursuant to Canon 1 of the Code of
Judicial Conduct such action would be contrary to the
appearance of integrity and independence of the judiciary which
we are charged with preserving.
Further, we believe that such action is contrary to Canon 2 of the
Code of Judicial Conduct in that it does not promote public
confidence in the integrity and impartiality of the judiciary.
Id., at 174.12
12
Appellee responds by reiterating the trial court’s opinion that Armor had
been “abrogated” when the Supreme Court declined, in a per curiam order,
to take the opportunity to “uphold the presumptive standard articulated in
Armor” and thus, “specifically rejected it.” Appellee’s Brief, at 18 (citing In
re Estate of Brockerman, 480 A.2d 1199, 1201 n.3 (Pa. Super. 1984)).
The Supreme Court did not issue an opinion with its remand order in
Brockerman. It cannot be said that Armor has been “abrogated” by
Brockerman or that our Supreme Court’s action in Brockerman has any
precedential value. See Commonwealth v. Thompson, 985 A.2d 928,
937-938 (Pa. 2009) (citing case law for the proposition that per curiam
orders hold no precedential authority).
28
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Contrary to Appellants’ contention, the Armor ruling does not create a
presumption that in all cases where a member of the bench has an interest
the entire bench must be recused. Rather, the Armor decision confirms the
principle that review of recusal determinations is to be made on a case-by-
case basis in light of the specific underlying facts, the nature of the interest,
and the relationship of the entire bench to that interest. As stated by the
Honorable Donald Wieand in his dissent, which expressed the consensus of
half of the judges in Armor:
The public expects and has a right to demand a high degree of
integrity and ethical responsibility on the part of its judges.
There can be no doubt that all judicial proceedings must be free
from appearances of impropriety. Therefore, a judge should not
participate in proceedings in which his or her objectivity and
impartiality are likely to be impaired. On the other hand, the
public also expects courage and independence on the part of its
judges. It is the individual judge who must in the first instance
determine whether in good conscience and judgment he or she
can hear a dispute objectively and impartially, or whether there
should be a recusal. His or her decision will not be disturbed
unless there is an abuse of discretion. The public is entitled to
the independent judgment of its judiciary and should not be
denied that judgment by unsupported claims of partiality.
In my judgment, public confidence in the judiciary will be
strengthened, not weakened, by respecting and upholding the
trial judge’s determination that he could hear and decide the
instant case impartially. Public confidence is not weakened
because judges are called upon to hear and decide difficult and
controversial cases. The public does expect, however, that
judges will rise above any influence which is inherent in the high
or low estate of litigants who come before them. Courage and
integrity are the hallmarks of an independent judiciary. More
often than we like to contemplate, it is recusals too readily
tendered in complex and controversial cases which weaken
public respect for the judiciary.
Id., at 178 (internal citation omitted).
29
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Furthermore, in Armor, the motion was made before the hearing, not
after the record had been closed, as in the case before us now. Here, the
Appellants had the advantage of knowing that Judge Rogers had ruled
against them in the liability portion of the trial, and that the testimony of
Kravitz was appalling when he tried to hide his assets and divert funds to
frustrate the court’s award.
Our Code of Judicial Conduct “set[s] a norm of conduct for all our
judges and do[es] not impose substantive legal duties on them.”
Commonwealth v. Druce, 848 A.2d 104, 109 (Pa. 2004) (citation
omitted). While Judge Branca’s discussions of the case with Appellee’s
counsel may or may not raise a personal ethical issue under our Code of
Judicial Conduct, the circumstances here do not provide a legal or ethical
reason to impugn the impartiality of the entire bench of the Montgomery
Court of Common Pleas or that of Judge Rogers. See id. As noted above,
before the trial got underway in January 2007, Judge Rogers discussed with
counsel, and specifically with Appellants’ counsel, the issue of now-Judge
Branca having previously represented Appellee. Most significantly, Judge
Rogers gave assurances to the parties that he had never discussed the case
with Judge Branca, and all counsel unequivocally agreed to proceed before
Judge Rogers.
There is no dispute that Judge Rogers was fair and impartial at all
times. We repeat, Appellants concede that there is no evidence that Judge
30
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Rogers showed bias, unfairness, or prejudice. We, therefore, conclude that
even if the motion for recusal had been timely raised, Judge Rogers did not
abuse his discretion in denying Appellants’ motions to recuse, change venue,
or assign an out-of-county judge.
The result advocated by the Dissent, that the damages verdict should
be vacated and the case remanded for a new trial, is unfair and an improper
exercise of judicial power. The Dissent’s position would be extremely
prejudicial to Appellee in that it would place Appellee at a distinct
disadvantage in this 20-year-old litigation. The trial judge who heard the
evidence and made findings relevant to the liability decision would not be
the judge who addresses the damages portion of the case. The credibility
decisions, the observations of the witnesses and other evidence, and the
conclusions reached by the trial judge in the liability phase would be
rendered meaningless because another judge would have to hear and decide
the damages portion of the case. If this were caused by necessity, such as
the retirement or death of a trial judge, then we would not have any
concerns. However, to remove the trial judge midstream, on an issue that
was easily discoverable by Appellants prior to trial would be unfair and
unprecedented.
Admission of Expert’s Report
Appellants aver that “the trial court erred in admitting and relying
upon testimony of Plaintiff’s expert” because “Judge Branca improperly
31
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influenced key aspects of Mr. Dovell’s report.” Appellant’s Brief at 34. At no
time prior to this appeal have Appellants specifically averred that the
expert’s testimony was inadmissible or unreliable.13 As the trial court noted,
although Appellants raised 57 errors in their Motion for Post-Trial Relief, they
did not assert that the trial court erred in admitting and relying on the
report. Arguments not raised below are waived for purposes of appeal. See
Pa.R.A.P. 302(a). Accordingly, this issue was not preserved and is therefore
waived on appeal.14
Piercing the Corporate Veil
Appellants maintain that their non-cash accounting methods, “made
for the purpose of minimizing Kravitz’s personal tax burden [and having] no
effect on Cherrydale’s ability to pay its creditors,” could not be used to hold
Appellants Kravitz, Andorra, and Eastern liable for the judgment against
Cherrydale. Appellants’ Brief at 37 (citing Gregory v. Helvering, 293 U.S.
465, 469 (1935)).
13
In their motion for recusal and motion for reconsideration of the recusal
motion, Appellants asserted only that Judge Branca gave his opinion on the
report to Appellee’s attorney during a telephone discussion about the case.
At no time prior to this appeal did Appellants argue that the report had been
improperly admitted and did not seek preclusion of the report or the expert’s
testimony. In their motion for post-trial relief, Appellants again did not argue
that the trial court improperly admitted or relied upon the expert or
testimony.
14
Moreover, even if the issue had not been waived, as the trial court
observed, “there is no evidence to support an assertion that Judge Branca,
or anyone else, improperly influenced” the content of the expert’s report.
Trial Court Opinion, dated 1/15/13, at 30-31.
32
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Piercing the corporate veil provides a “means of assessing liability for
the acts of a corporation against an equity holder in the corporation.”
Village at Camelback Property Owners Assn. Inc. v. Carr, 538 A.2d
528, 532 (Pa. Super. 1988), aff’d, 572 A.2d 1 (Pa. 1990) (per curiam).
The legal fiction that a corporation is a legal entity separate and
distinct from its shareholders was designed to serve convenience
and justice, and will be disregarded whenever justice or public
policy require and where rights of innocent parties are not
prejudiced nor the theory of the corporate entity rendered
useless. We have said that whenever one in control of a
corporation uses that control, or uses the corporate assets, to
further his or her own personal interests, the fiction of the
separate corporate identity may properly be disregarded.
Id., at 532-533 (citations omitted).
“[T]here is a strong presumption in Pennsylvania against piercing the
corporate veil.” Lumax Industries, Inc. v. Aultman, 669 A.2d 893, 895
(Pa. 1995). We consider the following factors when determining whether to
pierce the corporate veil: (1) undercapitalization; (2) failure to adhere to
corporate formalities; (3) substantial intermingling of corporate and personal
affairs, and (4) use of the corporate form to perpetrate a fraud. See id. The
“legal fiction of a separate corporate entity was designed to serve
convenience and justice, and will be disregarded whenever justice or public
policy demand and when the rights of innocent parties are not prejudiced
nor the theory of corporate entity rendered useless.” Ashley v. Ashley, 393
A.2d 637, 641 (Pa. 1978) (citations omitted).
33
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Appellants cite Gregory as illustrative of their position that the
corporate veil cannot be pierced and transactions cannot be considered
fraudulent when they are “motivated by the desire to achieve the best
possible tax benefit.” Appellants’ Brief at 37. In Gregory, a taxpayer
“reorganized” her business in accordance with the applicable statute to
obtain cash from her business and avoid a tax liability. The United States
Supreme Court affirmed the tax commissioner’s determination that the
“reorganization” was without substance and the tax payer was liable for tax
as if she had been paid a dividend. The United States Supreme Court
recognized that a taxpayer has a legal right to decrease the amount of what
would be his or her taxes or avoid them all together “by means which the
law permits” but noted that the “rule which excludes from consideration the
tax avoidance is not pertinent to the situation” because the “reorganization”
at issue had been an “elaborate and devious form of conveyance
masquerading as a corporate reorganization.” 293 U.S. at 470.
The trial court’s extensive findings of fact meticulously detail the
numerous transactions Appellant Kravitz orchestrated among Cherrydale,
Andorra Springs, Eastern, and other entities so as to render Appellant
Kravitz’s alleged motive of tax avoidance not pertinent. As the trial court
observed:
But for Kravitz’s direction that Andorra Springs loan money to
Eastern and Kravitz’s other entities and his subsequent direction
that Andorra Springs not repay Cherrydale for its intercompany
loans, Cherrydale would have realized a profit of approximately
34
J-E03004-14
$250,000 in 1996. [ ] Cherrydale was profitable as reflected by
the tax returns, but it ultimately did not pay its creditors
because it was not paid by Andorra Springs, nor was it repaid for
loans made by it to Kravitz and his other entities. [ ] Andorra
Springs’ 1996 tax return and Kravitz’s tax planning papers
demonstrate that, but for Kravitz’s direction[ ] that Eastern and
the other entities not repay their loans to Andorra Springs,
Andorra Springs would have realized a profit of more than $2.1
million. Had Andorra Springs retained the monies it made on
home sales rather than lend those monies to Eastern and
Kravitz’s other entities, Andorra Springs would have had
sufficient funds to pay Cherrydale. [ ] Had Eastern not lent
monies to other Kravitz entities, whose purposes had nothing to
do with constructing or selling homes in the Reserve, Eastern
would have had money with which to pay Andorra Springs. [ ]
Kravitz personally authorized the intercompany loans, declared
the companies insolvent, distributed the capital to himself and
authorized the write-off of the loans – all for his personal benefit
and to the detriment of creditors like [Appellee].
***
[ ]In his capacity as President and sole-shareholder, Kravitz was
… the only person within the Andorra Group with the authority to
bind the corporations to loans or other contracts. [He] signed
the tax returns for Cherrydale[, Andorra Springs, and Eastern]
for 1994 through 1998 and caused the returns to be filed. [ ]
Kravitz personally directed that Andorra Springs’ intercompany
payables’ be cancelled.
***
[ ]As a result of his sale of properties to Pulte and others in
1996, Kravitz had significant taxable income in 1996. [ ]
Without the Andorra Group’s bad debt deductions, Kravitz would
have been required to pay over a million dollars in tax. [ ]
Because of the Andorra Group’s bad debt deduction, Kravitz paid
only $3,734 in tax. [ ] The series of Adjusting Journal Entries
made at the end of 1996 was to the companies’ detriment and to
the benefit of Kravitz, in that the entries allowed Kravitz (1) not
to pay creditors of the Andorra Group companies and (2) to
retain the value of the Andorra Group corporations through
transfers of improvements, capital distributions and write-offs of
loans made to himself and his horse farm.
35
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Findings of Fact – Liability at 32-33, 35-37, ¶¶ 135-139, 144-157 (internal
paragraph numbers, headings and citations to Reproduced Record omitted).
Based on our thorough review of the record and relevant case law, we
conclude that the trial court’s findings of fact are supported by the record
and its conclusions of law contain no error. There is sufficient evidence in the
record showing that (1) Cherrydale had been undercapitalized; (2) Kravitz
had failed to adhere to corporate formalities; (3) there was extensive
intermingling of the various corporations’ funds; and (4) Appellant had used
the corporate form to perpetuate a fraud, specifically, to remove assets from
the reach of creditors, like Appellee. See Lumax Industries, Inc.
We also note that Appellants’ arguments against piercing the corporate
veil are based entirely on a self-serving recitation of the evidence, with
particular emphasis on the testimony of their corporate accountant, which
the court found to be not credible. It is well-settled that a fact-finder’s
credibility determinations may not be overturned by a reviewing court as
long as there is sufficient evidence in the record to support those
determinations. See In re Merlo, 58 A.3d 1, 27 (Pa. 2012). We conclude
that the court’s credibility determinations are supported by the record and
are not “manifestly erroneous, arbitrary and capricious or flagrantly contrary
to the evidence.” J.J. DeLuca Company, Inc. v. Toll Naval Associates,
56 A.3d 402, 410 (Pa. Super. 2012).
36
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Punitive Damages
Appellants aver that the trial court erred in awarding punitive damages
because “there was no evidence of outrageous, willful, wanton or reckless
conduct,” and fraudulent conduct alone is not enough upon which to base
punitive damages. Appellant’s Brief at 41. They also argue that the punitive
damages award is unconstitutionally disproportionate to the award of
compensatory damages.15
In reviewing challenges to punitive damage awards, we determine
whether the trial court has committed any abuse of discretion or whether
after a complete and exhaustive review of the record, the award shocks the
court’s sense of justice. See Empire Trucking Co., Inc. v. Reading
Anthracite Coal Co., 71 A.3d 923, 938 (Pa. Super. 2013).
Punitive damages are awarded to punish a person and/or entity for
“outrageous conduct.” Kirkbride v. Lisbon Contractors, Inc., 555 A.2d
800, 802 (Pa. 1989) (citing Restatement (Second) Torts § 908(1)). Conduct
is considered “outrageous” where a defendant’s actions shows either “an evil
motive or reckless indifference to the rights of others.” J.J. DeLuca
Company, Inc., 56 A.3d at 415-416 (citation omitted).
15
In addition, Appellants provide a three-sentence argument that because
CASPA allows for “penalty damages, as a matter of law the trial court was
prohibited from awarding common law punitive damages.” Appellants’ Brief,
at 49. Appellants cite inapposite and non-precedential case law and fail to
develop their argument. We, thus, conclude this argument is waived and, in
any event, without merit.
37
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“Reckless indifference to the interests of others”, or as it is
sometimes referred to, “wanton misconduct”, means that the
actor has intentionally done an act of an unreasonable character,
in disregard of a risk known to him or so obvious that he must
be taken to have been aware of it, and so great as to make it
highly probable that harm would follow.
McClellan v. Health Maintenance Organization of Pennsylvania, 604
A.2d 1053, 1061 (Pa. Super. 1992) (citations omitted).
The determination of whether a person’s actions arise to outrageous
conduct lies within the sound discretion of the fact-finder and will not be
disturbed on review, provided that discretion has not been abused. See J.J.
Deluca Company, Inc., 56 A.3d at 416. Our review is informed by the
following principles:
Under Pennsylvania law the size of a punitive damages award
must be reasonably related to the State’s interest in punishing
and deterring the particular behavior of the defendant and not
the product of arbitrariness or unfettered discretion. In
accordance with this limitation, the standard under which
punitive damages are measured in Pennsylvania requires
analysis of the following factors: (1) the character of the act; (2)
the nature and extent of the harm; and (3) the wealth of the
defendant.
We review such an award for an abuse of discretion. In addition,
in the face of a constitutional challenge, we conduct a de novo
review “to determine whether it comports with the Due Process
Clause of the Fourteenth Amendment to the United States
Constitution.”
Grossi v. Travelers Personal Insurance Co., 79 A.3d 1141, 1157 (Pa.
Super. 2013) (quoting Hollock v. Erie Insurance Exchange, 842 A.2d
409, 420 (Pa. Super. 2004)), appeal denied, 101 A.3d 103 (Pa. 2014)
(citations omitted).
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Our review of the record in this case discloses that the trial court’s
award of punitive damages award is sufficiently supported by the record.
We need not reiterate the trial court’s extensive and detailed findings of fact
that support its proper legal conclusion that Appellants’ conduct was
outrageous and demonstrated a reckless indifference to the rights of others.
See Findings of Fact – Liability at 1-64; Findings of Fact – Attorneys’ Fees
and Damages at 5-9. As soon as the interim arbitration award of $31,000
was entered against Cherrydale in 1996, Kravitz began a steady and
persistent campaign to avoid paying Appellee. The campaign that has
continued for nearly 20 years and has involved not only fraudulent transfers
of assets as noted above, but years of incessant use and abuse of our civil
litigation processes.
Appellants contend that they were simply using acceptable litigation
strategies within their rights, but they fail to acknowledge that many of their
motions and petitions were procedurally and/or legally without support and
appear to have been designed to wear Appellee down with delay and
expense. These filings included, but were not limited to, impermissible
interlocutory appeals with both this Court and our Supreme Court; a
frivolous petition to disqualify Appellee’s attorney; unnecessary demands for
additional days of discovery, followed by redundant and irrelevant discovery
requests; a summary judgment motion which completely disregarded
Appellant’s prior representation that questions of law existed which
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precluded summary judgment; numerous requests for trial delays; and a
request for a thirty-day post-trial time for review, which passed with no
communication at all from Appellants.
Moreover, even though Appellants had been well-aware of Judge
Branca’s involvement in this case since 1995, and had informed the trial
court that his prior representation of Appellee was a non-issue with respect
to the trial proceeding in Montgomery County before Judge Rogers,
Appellants nevertheless requested recusal of the entire bench after the close
of evidence. Appellants’ actions over nearly 20 years, combined with
Kravitz’s abuse of corporate forms and accounting methods to avoid paying
what is rightfully owed to Appellee, present a fact pattern that paints the
very picture of outrageous conduct. We conclude that the trial court did not
abuse its discretion in awarding punitive damages.
With respect to Appellants’ claim that the proportionality of punitive
damages to compensatory damages violated their right to due process,
Appellants acknowledge that the United States Supreme Court has “yet to
impose a hard-and-fast limitation” on the ratio between punitive and
compensatory damages. Appellants’ Brief, at 50. Appellants nevertheless
contend, without citation to any definitive pronouncements by any federal
court, that the “trial court’s award of punitive damages exceeds the federal
Constitutional limits of a 1:1 ratio.” Appellants’ Brief at 50. Appellants
grossly misstate the law.
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The United States Supreme Court has stated:
[W]e have been reluctant to identify concrete constitutional
limits on the ratio between harm, or potential harm, to the
plaintiff and the punitive damages award. We decline again to
impose a bright-line ratio which a punitive damages award
cannot exceed. Our jurisprudence and the principles it has now
established demonstrate, however, that, in practice, few awards
exceeding a single-digit ratio between punitive and
compensatory damages, to a significant degree, will satisfy due
process.
State Farm Mutual Automobile Insurance Co. v. Campbell, 538 U.S.
408, 424-425 (2003) (citation omitted).
Here, the trial court awarded compensatory damages in the amount of
$200,601.61 and punitive damages of $601,804.83, a ratio of 3:1. This
comports with the single-digit ratio. In light of the circumstances of this case
detailed above and our review of the relevant law, we discern no abuse of
discretion or constitutional infirmity in the award of punitive damages.
Appellants also argue that the trial court awarded punitive damages
based only on its findings of fraud and fraudulent transfer, in derogation of
Pittsburgh Live, Inc. v. Servov, 615 A.2d 438 (Pa. Super. 1992), and
Pennsylvania’s Uniform Fraudulent Transfer Act, 12 Pa.C.S.A. §§ 5101-5110.
In support, Appellants reiterate their witnesses’ testimony. In essence,
Appellants argue that the trial court erred in not accepting their
interpretation of the facts of this case.
In Pittsburgh Live, the Superior Court reversed the trial court’s
award of punitive damages after concluding that although there had been
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fraudulent conduct which supported the compensatory damage award, there
had been no acts which had been wanton or vindictive, or which had showed
a wanton disregard for the rights of others so as to support an award of
punitive damages. See 615 A.2d at 442. Here, contrary to Appellants’
averments, punitive damages were based on a determination that they had
acted with a wanton disregard for the rights of others. This finding is amply
supported by the record. Accordingly, this argument is without merit.
Attorney’s Fees, Penalities, and Interest
The trial court assessed interest, penalties, and attorney’s fees as
follows:
a. Partial Judgment ……………………………………………..…… $ 200,601.61
b. Interest on Judgment pursuant to CASPA (73 P.S. § 505(d))[ ]
in the amount of 1% per Month from September 8, 1998
through April 30,2011 ………..……………………………… $ 306,467.55
c. Penalty on Judgment pursuant to CASPA (73 P.S. §512(a))
in the amount of 1% per Month from September 8,1998
through April 30, 2011 ……………………………………..… $ 306,467.55
d. Attorney’s Fees and Costs pursuant to CASPA (73 P.S.
§ 512(a)(b)) from September 8, 1998 through August 15,
2007 …………………………………………………………………... $ 273,037.65
e. Punitive Damages …………………………………………….… $ 601,804.83
f. Interest shall continue to accrue pursuant to CASPA at 1% per
month from May 1, 2011 in the amount of $131.90 per day until paid
in full.
Final Judgment against All Defendants as of April 30, 2011:
TOTAL ………………………………………………....... $1,688,379.10
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Order Sur: Assessment of Damages, dated April 29, 2011 (footnote to case
law omitted).
Appellants contend that the trial court’s grant of attorney’s fees,
penalties and interest represent an impermissible modification of the
arbitration award and should not have been allowed because Appellee had
not stated a cause of action under CASPA in the instant case. See
Appellants’ Brief at 51. They also argue that the interest should have been
calculated in accordance with the arbitration panel’s directive and not based
on that panel’s final award.
CASPA was enacted in 1994 to cure abuses within the building industry
involving payments due from owners to contractors and subcontractors and
“to encourage fair dealing among the parties to a construction contract.”
Zimmerman v. Harrisburg Fudd I, L.P., 984 A.2d 497, 500-501 (Pa.
Super. 2009) (citation omitted). Because “CASPA is a remedial statute, we
must accord it a liberal construction to effect its objects and to promote
justice.” Id., at 502 n.8 (citations omitted). CASPA provides that “[i]f
arbitration or litigation is commenced to recover payment due under this act
… the arbitrator or court shall award, in addition to all other damages due, a
penalty equal to 1% per month of the amount that was wrongfully withheld.”
73 P.S. § 512.
As the trial court observed, the instant action, like the underlying
arbitration proceeding, was “a proceeding to recover” payment due under
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CASPA. After the trial court determined that piercing the corporate veil was
appropriate in order to execute on the judgment due and owing, which was
then the final arbitration award of $200,601.61, Section 505(d) was
implicated against Appellant Kravitz as owner of Cherrydale and the other
involved subcorporations. The trial court’s calculations were properly based
on CASPA. See 73 P.S. §§ 505(d) and 512. Accordingly, we find no error in
the trial court’s calculation of interest and penalties.
With respect to the attorney’s fees imposed by the trial court, the trial
court’s award of attorney’s fees covers the period from September 8, 1998,
after the arbitration award was issued, through August 15, 2007, and
includes those incurred in connection with the instant litigation. Contrary to
Appellants’ averment, these fees do not represent a modification of the
arbitration award.
Judgment affirmed.
President Judge Emeritus Bender, Judge Lazarus, and Judge Wecht
join this majority opinion.
Judge Stabile files a concurring and dissenting opinion in which Judge
Bowes, Judge Donohue, and Judge Shogan join.
Judge Allen did not take part in the consideration or decision of this
case.
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Judgment Entered.
Joseph D. Seletyn, Esq.
Prothonotary
Date: 12/21/2015
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